The Namibian Budget 2016/17 - 2018/19 Towards Pro- growth Fiscal - - PowerPoint PPT Presentation

The Namibian Budget

House of Democracy 70-72 Frans Indongo Street PO Box 22945 Windhoek Namibia committee@ean.org.na Rowland Brown rowlandbrown@ean.org.na 0816756401

2016/17 - 2018/19 “Towards Pro-growth Fiscal Consolidation”

OUTLINE

• Why we pay tax
• Macro backdrop
• Revenue
• Expenditure

– Personnel – By vote – Development projects – Transfers to SOEs

• Debt and deficit
• Assessment
• Budget process
• Conclusions

2 16/03/2016

CURRENT RESPONSIBILITIES OF GOVERNMENT

• 1. Growth & Employment

– Creating a sustainable and conducive environment in which jobs and wealth can be created for Namibians

• 2. International investment rating

– Responsible use of public funds – Deficit containment – Debt and debt servicing cost containment – External position protection

• 3. Provision of key service infrastructure

– Electricity, water, road, rail, etc.

• 4. Social support, poverty reduction and (sustainable) redistribution

– Pensions, social grants, social safety net, reduced inequality

• 5. Housing

– Access to housing

• 6. Education and Health

– Provision of high quality education and health care

3 16/03/2016

The reasons we pay tax

QUESTION: DOES THIS BUDGET ADDRESS THESE ISSUES?

4 16/03/2016

MACROECONOMIC BACKDROP

• Been through a period of exceptionally strong growth.

– Rebased from N$83bn economy to N$160bn economy in 6 years. – Driven by fiscal and monetary stimulus, and large FDI. – Resulted in construction and consumption boom.

• Looking forward, outlook notably weaker

– infrastructure constraints – The unwinding of historically low interest rates – lower levels of Government spending – less foreign direct investment into the country – fewer Angolan retail tourists – reduction in diamond output – weak commodity prices – drought – a high base.

• Inflation
• External position

Previous pro-cyclical policy and now high debt levels and weak external position leave limited policy space for Government and BON

5 16/03/2016

Where to from here?

6 16/03/2016

REVENUE Where does the money come from?

GDP FORECASTS

7 16/03/2016

13.4% 14.2% 12.1% 11.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 50,000 100,000 150,000 200,000 250,000 300,000 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 N$ Million

Nominal GDP

MOF IJG MOF Growth (RHS) IJG Growth (RHS)

REVENUE

• Total revenue revised down

to N$57.8bn, from N$63.1bn

• Main source of slowdown

lower SACU receipts.

• Growth expected to slow

almost across the board.

• Downward revisions for all

MTEF years, due to base.

• Expected fast recovery in

growth rate in 2017/18 and 2018/19

• Forecasts thought to be

ambitious given growth

• utlook.

8 16/03/2016

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 N$ Million

Revenue

2006 Budget 2007 Budget 2008 Budget 2009 Budget 2010 Budget 2011 Budget 2012 Budget 2013 Budget 2014 Budget 2015 Budget 2015 Mid-Term Budget 2016 Budget

REVENUE BREAKDOWN

• Income tax remains largest

single revenue source, followed by VAT

– Critical for social contract between tax payers and public

• fficials.
• SACU contribution lower than

normal due to N$3bn repayment

• Other sources <25% of total

revenue.

9 16/03/2016

Income tax

• n

individuals 15.5 27% VAT 14.8 26% SACU 14.1 24% Company taxes 8.7 15% Non-tax revenue 3.6 6% Other revenue 1.0 2%

Revenue Breakdown 2016/17

GOVERNMENT REVENUE AS % OF GDP

10 16/03/2016

Montserrat Lesotho Congo, Republic of Angola Swaziland Botswana Zimbabwe

Namibia

Mozambique Sweden New Zealand Belgium Finland Italy Liberia Netherlands South Africa Zambia Rwanda Mauritius Kenya Tanzania Ghana Chile Egypt Malawi Senegal Uganda Spain Cote d'Ivoire Pakistan Canada Japan United States Germany China, P.R.: Mainland Brazil Nigeria Samoa

• 10.0

20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 Percent of GDP Govt Revenue to GDP Average

NEW REVENUE SOURCES

“Our focus is not only to broaden and deepen the tax base, but also to make the tax system more progressive, so that it contributes positively to the social objectives of reducing income inequalities” Calle Schlettwein, Budget Speech, March 2016 Government will:

• finalize the approval and implementation process of an Environmental tax, and

an Export tax to promote domestic value addition

• increase the fuel levy
• assess the feasibility of a presumptive tax on informal sector
• develop the Double - Taxation Agreement Policy;
• Look to reduce illicit trade flows and transfer pricing;
• continue to finalize the consultation on the proposed Solidarity Tax;
• Improve recovery of tax debts
• deploy the new Integrated Tax System; and
• implement transitional modalities for a Semi-Autonomous Revenue Agency.

11 16/03/2016

12 16/03/2016

EXPENDITURE Where will the money go?

EXPENDITURE

• Notable expenditure

reduction.

– Down 1.1% between 2015/16 and 2016/17 – Down 7.4% when compared to previous budgeted number for 2016/17

• Major expenditure pick-up

again in 2017/18 and 2018/19

– However, last MTEF years rarely play out as initially forecast.

• Huge escalation in spending

in past 6 years.

– Funded by revenue windfall and debt

13 16/03/2016

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 N$ Million

Expenditure

2006 Budget 2007 Budget 2008 Budget 2009 Budget 2010 Budget 2011 Budget 2012 Budget 2013 Budget 2014 Budget 2015 Budget 2015 Mid-Term Budget 2016 Budget

SOURCE OF CUTS

• Major cuts from the development

budget.

– Slashed 18.3% when compared to 2015/16 and; – 27.9% when compared to previous levels for 2016/17.

• Development budget now makes

up just 13.7% of total expenditure, well below 20% target.

• Operational expenditure up 1.6%
• ver 2015/16 budget, but down

3.0% when compared to previous budget figure for 2016/17

14 16/03/2016 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Actual Actual Estimate Estimate Estimate Estimate Estimate N$ Million

Budget Breakdown

Operational Budget (2015) Devevelopment Budget (2015) Development as % total (RHS)

N$ Million Estimate Estimate 2015/16 2016/17 Operational Budget (2015) 55,996 58,687 Development Budget (2015) 11,095 12,557 Total (2015) 67,092 71,244 Operational Budget (2016) 55,280 56,939 Development Budget (2016) 11,065 9,057 Total (2016) 66,345 65,996 Operational Change 2015-2016 Budgets (N$) (717) (1,748) Development Change 2015-2016 Budgets (N$) (30) (3,500) Total Change 2015-2016 Budgets (N$) (747) (5,248) Operational Change 2015-2016 Budgets (%)

• 1.3%
• 3.0%

Development Change 2015-2016 Budgets (%)

• 0.3%
• 27.9%

Total Change 2015-2016 Budgets (%)

• 1.1%
• 7.4%

Year on Year Change 12.7%

• 0.5%

Development as % of Total 16.7% 13.7%

EXPENDITURE BREAKDOWN

• Personnel costs larger than normal,

at 38% of total expenditure.

• Subsidies and other current

transfers second larges item at 26%

– Made up of transfers to SOEs, social grants, pensions etc.

• Goods and other services at 13%,

and declining due to notable cuts in:

– Travel and Subsistence Allowance – Transport – Training Courses, Symposiums and Workshops – Furniture and Office Equipment

• Interest and other borrowing costs

becoming significant, as debt stock increases, at 7%.

• Leaves very little for development

projects.

15 16/03/2016

37% 35% 38% 37% 37% 14% 14% 13% 13% 13% 26% 27% 26% 26% 25% 4% 5% 7% 7% 8% 11% 12% 11% 13% 10% 9% 7% 5% 5% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2014/15 2015/16 2016/17 2017/18 2018/19 Actual Revised Estimate Estimate Estimate Estimate

Expenditure Breakdown

Other Acquisition of Capital Assets (DevB) Interest Payments & Borrowing Charges Subsidies and Other Current Transfers Goods and Other Services Personnel Expenditure

PERSONNEL EXPENDITURE

• Personnel expenditure seen

sizable increases since 2012/13

• Huge increases in 2013/14 and

2014/15.

– Part of effort to align civil service wages to private sector to attract in talent.

• Upward revision in 2016/17,

from N$24.2bn to 25.1bn.

• Very ambitious growth target

for 2017/18.

16 16/03/2016

9.7% 28.6% 20.9% 7.9% 7.3% 2.2% 8.1% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

• 5,000

10,000 15,000 20,000 25,000 30,000 Annual Change (5) N$ Million

Personnel Expenditure

Growth Rate (RHS) 2014 Budget 2015 Budget 2016 Budget

WAGE BILL

• Wage bill growth driven by both

number of employees and average wages

• Average almost doubled from

2010 to 2016.

• Wage increases well ahead of

inflation

17 16/03/2016

• 5%

0% 5% 10% 15% 20% 25% 30% 35%

• 50,000

100,000 150,000 200,000 250,000 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 N$

Average Salary

Average Salary Increase (RHS) Average Cost To Company Increase (RHS) Average Salary Average Cost To Company

• 50,000

100,000 150,000 200,000 250,000 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Average Annual Wage (N$)

Average Namibian Government Wage vs Inflation

Inflation Suggested Average Wage Actual Average Wage

• 20,000

40,000 60,000 80,000 100,000 120,000 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Government Staffing

Funded Filled

GLOBAL COMPARISON

18 16/03/2016

Montserrat Zimbabwe Lesotho

Namibia

Swaziland Mozambique Botswana Angola South Africa Portugal Ghana Mongolia Egypt Zambia Israel Kenya Cote d'Ivoire Mauritius Italy Thailand Malawi Sierra Leone France Denmark Chile Nigeria Congo, Democratic Republic of Tanzania Congo, Republic of Rwanda Sudan Norway Uganda Netherlands Spain Sweden Finland China, P.R.: Macao Argentina Korea, Republic of Poland Canada United States Mexico India Germany Ethiopia Brazil Pakistan Switzerland Samoa

• 5.0

10.0 15.0 20.0 25.0 30.0 % of GDP

Civil Service Wage Bill as % of GDP

BY VOTE

19 16/03/2016

1,203,612 1,178,778 564,619 561,724 540,531 406,358 392,953 382,312 341,586 326,243 322,199 320,082 317,365 308,579 294,231 282,811 277,671 261,461 248,070 237,810 236,384 210,059 205,292 199,737 176,212 172,322 172,063 169,692 169,342 160,270 159,250 138,862 129,236 100,238 80,841

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 N$/annum

Average Compensation

Average Cost to Company

37,874 19,052 15,180 10,380 3,590 1,958 1,565 1,120 1,025 1,000 983 805 642 630 550 509 496 440 341 309 253 243 235 232 198 157 141 130 123 119 113 86 69 44 14

• 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000

Staffing by Vote

20 16/03/2016

2016/17 EXPENDITURE BREAKDOWN

21 16/03/2016

 Education still largest recipient of funds - continuing questions around quality.  Finance becoming ever more sizable due to statutory expenditure, SOE transfers and interest payments  Health moves above Defence  Defence still huge, including large development budget expenditure.

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 Education Finance Health Defence Police Transport Higher Education Poverty Eradication Regional, Local Government Agriculture Veterans Affairs Foreign Affairs Gender Equality Trade President Works Lands and Resettlement Environment and Tourism Home Affairs ICT Youth Prime Minister Justice Fisheries Prisons Mines and Energy National Assembly NPC Labour and Social Welfare Electoral Commission National Council Attorney-General Auditor General Public Enterprises Anti-Corruption Commission N$ Million Operational Development

MTEF EXPENDITURE BREAKDOWN

22 16/03/2016

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Education Finance Health Defence Police Transport Higher Education Poverty Eradication Regional and Local Government Agriculture, Veterans Affairs Foreign Affairs Trade and Industry Gender Equality Lands Works President Environment ICT Youth Home Affairs Prime Minister Justice Fisheries Mines and Energy Prisons NPC National Assembly Electoral Commission Labour and Social Welfare National Council Attorney-General Auditor General Public Enterprises Anti-Corruption Commission N$ Million Operational Development

LARGEST DEVELOPMENT BUDGET PROJECTS, 2016/17

23 16/03/2016

Transport Railway Network Upgrading N$390m Land Reform Land Purchase Project N$327m Defence Research and Development N$306m Agriculture Construction of Large Dams, Desalination and Provision of Water to larger Settlements N$253m Transport Upgrading the TR9/1: Windhoek-Hosea Kutako road to a dual carriage (44km) N$224m Transport Rehabilitation of the TR 1/16: Windhoek -Okahandja Road (67km) N$220m Agriculture Green Scheme N$216m Transport Upgrading of MR91 Gobabis - Aminius & MR 40 Aminius - Aranos (245Km) to bitumen standard N$182m Transport Construction of Swakopmund - Henties Bay - Kamanjab Link (412 KM). N$154m Education Basic Education Facilities Upgrading N$150m International Relations Purchasing, Constructing and Renovating of Diplomatic Premises Abroad N$143m President State Security Infrastructure N$132m Land Reform Development of Communal Areas N$125m Agriculture Rural Water Supply Coverage (Rural Secondary Pipeline Construction) N$125m Transport Upgrading of Oshakati - Ongenga (DR 3609) road to bitumen standard N$121m Transport Construction of gravel road: Isize - Sifuha - Malindi- Schuckmannsburg (50km) N$116m Transport Maintenance of Roads: Flood Damaged Infrastructure Repair N$100m Transport Northern Railway Line Extension N$98m Prime Minister Construction of the Second Office of the Prime Minister N$97m Trade Agro Processing Development N$95m

STATE SECURITY INFRASTRUCTURE

24 16/03/2016

PERSPECTIVE: Nkandla cost an estimated R246m 2016/17 allocation = cost of servicing +2,600 erven Total project cost = cost of servicing +32,000 erven Total Project Cost: N$1.6 billion

CONSTRUCTION OF A NEW NAMIBIAN PARLIAMENT BUILDING

• Development Budget, 2015 (N$’000)

25 16/03/2016

• Development Budget, 2016 (N$’000)

N$613 million to N$ 2.01 billion in one year. 228% price increase in one year. Total project cost = cost of servicing +50,000 erven

LARGEST DEVELOPMENT BUDGET PROJECTS

Transport Development of the Cape Fria- Katima Mulilo Railway Line N$10.4bn Education Establishment of Hostels at Schools Nationwide N$10.0bn Defence Research and Development N$6.66bn Transport Railway Network Upgrading N$5.46bn Rural, Urban Development Implementation of the Master Plan for Oshakati Town N$3.29bn Transport Rehabilitation of the TR 1/16: Windhoek -Okahandja Road (67km) N$3.26bn Agriculture Construction of Large Dams, Desalination and Provision of Water to larger Settlements N$3.12bn Land Reform Land Purchase Project N$3.01bn Agriculture Bulk Water Supply N$3.00bn Agriculture De-bushing in Commercial and Communal areas N$3.00bn Transport Upgrading the TR9/1: Windhoek-Hosea Kutako road to a dual carriage (44km) N$2.70bn Agriculture Green Scheme N$2.54bn Transport Northern Railway Line Extension N$2.37bn National Assembly Construction of a New Parliament Building N$2.01bn Rural, Urban Development Construction of Services Infrastructure in Outapi Extension 8 N$1.97bn Transport Maintenance of Roads: Paved and None Paved Roads and Flood Damaged Infrastructure Repair N$1.81bn International Relations Purchasing, Constructing and Renovating of Diplomatic Premises Abroad N$1.63bn Education Basic Education Facilities Upgrading N$1.40bn President State Security Infrastructure N$1.38bn Transport Upgrading of the MR 44: Swakopmund -Walvis Bay Road (44 km) N$1.31bn

26 16/03/2016

LARGEST DEVELOPMENT BUDGET PROJECTS CONT.

Agriculture National Horticulture Development Initiative ( Horticulture Production, Processing and Marketing) N$1.18bn Transport Upgrading of MR91 Gobabis - Aminius & MR 40 Aminius - Aranos (245Km) to bitumen standard N$1.16bn Education Construction of Teachers Houses N$1.14bn Agriculture Rural Water Supply Coverage (Rural Secondary Pipeline Construction) N$1.11bn Trade Construction of Sites and Premises Industrial Estates N$1.1bn Home Affairs Construction of Head Office for MHAI N$1.07bn Agriculture Integrated Forest Resource Management N$1.06bn Correctional Service Construction and Renovation of Official Accommodation N$1.04bn Education Renovations of School Nation Wide N$1bn Prime Minister Construction of the Second Office of the Prime Minister N$0.99bn Rural, Urban Development Construction of Services Infrastructure in Walvisbay (Phase 3) N$0.98bn Police Upgrading of Police Stations N$0.98bn Transport Upgrading and Rehabilitation of Aus-Luderitz Railway Line N$0.89bn Rural, Urban Development Construction of Services Infrastructure in Katima Mulilo N$0.89bn Police Construction of Police Accommodation in (Housing Various Centre) N$0.85bn Transport Construction of Swakopmund - Henties Bay - Kamanjab Link (412 KM). N$0.81bn Defence Upgrading of Leopards Valley Military Base N$0.8bn Defence Construction of General Military Referral Hospital N$0.8bn Health Construction and upgrading of Primary Health Care Clinics Nationwide N$0.74bn Transport Upgrading of TR 14/2: Gobabis - Otjinene road to bitumen standard N$0.72bn

27 16/03/2016

LARGEST DEVELOPMENT BUDGET PROJECTS CONT.

Mines and Energy Rural Electrification N$0.69bn Transport Construction and Tarring of the road from Opuwo to Epupa N$0.68bn Transport Construction and Tarring of the road from Opuwo to Sesfontein N$0.64bn Defence Rehabilitation of old bases countrywide N$0.62bn Rural, Urban Development Upgrading and development of Informal Settlements & Low Income Townships in Windhoek N$0.61bn Rural, Urban Development Construction of Services Infrastructure in Nkurenkuru Phase 2 N$0.6bn Education Building and Maintenance N$0.6bn Defence Construction of Oluno Military Base N$0.57bn Justice Justitia Building Upgrading & Construction N$0.56bn Defence Construction of Gobabis Military Base N$0.55bn Transport Upgrading the MR 110: Rundu - Elundu Road to Bitumen Standard N$0.55bn Defence Construction of Mpacha Military Base N$0.55bn Defence Upgrading and Renovation of Otjiwarongo Military Base N$0.55bn Transport Rehabilitation of the TR 2/1: Swakopmund -Walvis Bay Road (30 km) N$0.54bn Justice Upgrading and Construction of Lower Courts N$0.53bn Transport Rehabilitation of the Keetmanshoop - Mariental road (386km) N$0.53bn Rural, Urban Development Construction of Services Infrastructure in Oshakati N$0.52bn Transport Upgrading of DR 3608: Omafo - Ongenga - Outapi road to Bitumen Standard N$0.5bn Defence Construction of H. Katjipuka Military Base N$0.5bn Agriculture Establishment of Agro Processing Facilities N$0.5bn

28 16/03/2016

NEW DEVELOPMENT BUDGET PROJECTS

Project Name Project Cost(N$'000) 20/11/10 - Bulk Water Supply 3,615,000 24/02/122 - Keetmanshoop via Aroab to Klein Menasse Border Post 6 km) 1,020,600 08/04/18 - Construction of H. Katjipuka Military Base 500,000 08/04/20 - Construction of 21 Guard Military Base 500,000 20/07/3 - Establishment of Agro Processing Facilities 500,000 19/04/27 - Construction of Pharmaceutical Manufacturing Plant in Okahandja 303,200 08/04/19 - Construction of Leopards Valley Sports Complex 200,000 16/02/2 - Construction of Attorney-General's Office 150,000 21/04/1 - Elizabeth Nepemba Correctional Facility Extension Construction 140,008 18/07/8 - Construction of Infrastructure for Solid Waste 140,000 20/05/9 - Production incentives for sunflower oil seed and cowpeas 135,000 33/04/1 - Construction Food Bank Khomas 129,254 18/06/3 - Development and Establishment of Research and Development Center for Biotrade in Namibia 120,000 24/02/98 - Construction of gravel road D3622: Omukukutu - Omboloka (25km) 103,345

29 16/03/2016

30 16/03/2016

FREE ERVEN EQUIVALENT

Ministry Project Project Cost

FREE Erven Equivalent

Defence Research and Development N$6.66bn

133,153

Agriculture Construction of Large Dams, Desalination and Provision of Water to larger Settlements N$3.12bn

62,333

International Relations Purchasing, Constructing and Renovating of Diplomatic Premises Abroad N$1.63bn

32,689

President State Security Infrastructure N$1.38bn

27,586

Home Affairs Construction of Head Office for MHAI N$1.07bn

21,308

Prime Minister Construction of the Second Office of the Prime Minister N$0.99bn

19,713

Defence Upgrading of Leopards Valley Military Base N$0.8bn

16,018

Defence Rehabilitation of old bases countrywide N$0.62bn

12,305

Defence Construction of Gobabis Military Base N$0.55bn

11,024

Defence Construction of Mpacha Military Base N$0.55bn

10,909

Defence Upgrading and Renovation of Otjiwarongo Military Base N$0.55bn

10,909

Defence Construction of H. Katjipuka Military Base N$0.5bn

10,000

Defence Construction of 21 Guard Military Base N$0.49bn

9,800

Labour Construction of the Ministry of Labour Head Office N$0.4bn

7,967 385,713

31 16/03/2016

TRANSFERS TO SOES

32 16/03/2016

NSFAF , 1,201 University of Namibia , 961 Air Namibia , 695 Namibia Training Authority (NTA) , 509 NUST , 482 Transnamib Holdings , 313 HRDC , 300 NBC , 252 Veterans Project , 228 Namibia Airport Company (NaCC) , 155 Namibia Statistics Agency , 139 National Youth Service (NYS) , 102 NHE , 100 NRSTF , 96 SME Bank , 78 Development Bank of Namibia , 60 NamPort , 53 Agribank , 50 Food Bank , 50 Other, 585

2016/17 Transfers to SOEs (N$ Million)

NSFAF , 4,078 University of Namibia , 3,216 Air Namibia , 2,185 NUST , 1,721 Namibia Training Authority (NTA) , 1,690 HRDC , 1,162 Transnamib Holdings , 932 NBC , 870 Veterans Project , 743 Namibia Statistics Agency , 451 Namibia Airport Company (NaCC) , 412 National Youth Service (NYS) , 313 NRSTF , 294 SME Bank , 272 Food Bank , 176 NamPort , 159 Development Bank of Namibia , 159 Namibia Standard Institute(NSI) , 141 Agribank , 132 University of Namibia (UNAM)(College s) , 131 NHE , 100 Other, 1,527

Transfers to SOEs Over MTEF (N$ Million)

LEVEL OF DETAIL ON TRANSFERS TO SOES - EXAMPLE

33 16/03/2016

EXPENDITURE BREAKDOWN BY CATEGORY

Expenditure Growth 2016/17 2017/18 2018/19 2016/17 2017/18 2018/19 Social 28,528 30,204 32,675 6.8% 5.9% 8.2% Public safety 13,007 13,411 14,600

• 9.0%

3.1% 8.9% Administration 6,031 5,452 6,066

• 7.0%
• 9.6%

11.3% Economic 8,394 9,106 9,324

• 15.3%

8.5% 2.4% Infrastructure 5,162 6,703 6,057

• 11.0%

29.9%

• 9.6%

Total (excl. statutory payment) 61,121 64,876 68,722

• 3.3%

6.1% 5.9%

34 16/03/2016

Key questions:

• Where do the funds to support social spending come from?
• Are we doing enough to maintain the ability of these sources to provide

these funds?

35 16/03/2016

BUDGET BALANCE AND DEBT STOCK The difference…

DEBT STOCK

36 16/03/2016

0% 5% 10% 15% 20% 25% 30% 35% 40%

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2009 2010 2011 2012 2013 2014 2015 2016 Debt to GDP Debt Stock

Namibian Public Debt

Foreign debt stock Domestic debt stock Total Debt to GDP % (RHS)

GROWTH IN DEBT STOCK

37 16/03/2016

• 40%
• 20%

0% 20% 40% 60% 80% 100%

• 5,000
• 5,000

10,000 15,000 20,000 25,000 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152016 N$ Million

Public Debt

Rolling 12m net issuance Debt to GDP (RHS) Growth Rate (RHS)

DEBT BENCHMARKS

Benchmark Current Total debt / GDP 35% 37% Domestic debt / GDP 28% 19% Foreign debt / GDP 7% 18% Foreign debt (excl. Rand) / GDP 7% 12% Total debt Service / Revenue 10% 8% Total debt Service/ GDP 3% 3% Domestic debt / Total debt 80% 52% External debt / Total debt 20% 48% External debt (excl. Rand) / Total debt 20% 33% Debt falling due within 12 months 30% 22% Total Guarantees / GDP 10% 8% Bonds as Percent of Total (Domestic) 60% 59% TBs as Percent of Total (Domestic) 40% 41%

38 16/03/2016

We have breached a number of debt benchmarks – how seriously is this being taken?

PREVIOUS FORECASTS – 2014 BORROWING PLAN

BUDGET BALANCE

• The deficit for 2016/17 is forecast

at N$8.2 billion, down from N$9.6 billion in 2015/16.

– 4.3% of GDP, from 5.8%.

• These deficits are expected to

shrink through the MTEF, to 1.8%

• f GDP by 2018/19
• However, ambitious growth

forecasts and downward sticky expenditure make achieving this highly challenging.

• Estimates from IJG Securities,

suggest a much larger deficit across all years.

• Cost of debt increasing notably –

primary surplus forecast in 2018/19, but debt cost of 2.4% of GDP.

40 16/03/2016

• 10.0%
• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0%

Budget Balance

Overall Deficit (% GDP) - MOF Overall Deficit (% GDP) - IJG

• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% (12,000.00) (10,000.00) (8,000.00) (6,000.00) (4,000.00) (2,000.00)

• 2,000.00

4,000.00

Deficit

Cost of Debt Primary Deficit Overall deficit Overall Deficit (% GDP) Primary Deficit (% GDP)

DEBT SERVICING COSTS

41 16/03/2016

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Debt Servicing to GDP

Namibia (MOF Estimates) Namibia (IJG Estimates) USA (St. Louis Fed)

GROWTH (AND INFLATION) KEY TO OVERCOMING HIGH SERVICING COSTS GROWTH OUTLOOK UNCERTAIN

DEFICIT FORECASTS VS. ACTUAL

42 16/03/2016

(20,000) (15,000) (10,000) (5,000)

• 5,000

2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2006 Budget 2007 Budget 2008 Budget 2009 Budget 2010 Budget 2011 Budget 2012 Budget 2013 Budget 2014 Budget 2015 Budget 2015 Mid-Term Budget 2016 Budget Actual

DEBT STOCK FORECAST

43 16/03/2016

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 2014/15 2015/16 2016/17 2017/18 2018/19 Actual Estimates Estimates Estimates Estimates N$ Million

Debt Stock

Currency Depreciation Domestic Debt Stock Foreign Debt Stock (est.) As a % of GDP (MOF) RHS As a % of GDP (IJG) RHS

44 16/03/2016

ASSESSMENT How do we fare?

GROWTH & EMPLOYMENT

What is being done:

– Sizable direct employment by Government – Historic stimulus key driver of recent growth. – Government remains key player in the local economy

What more needs to be done:

– Desperate need to move away from Government creating jobs/growth, to Government facilitating the creation of jobs/growth.

• Improved business environment
• Improved access to services
• Improved education
• Less red tape
• Less pernicious legislation/regulation

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INTERNATIONAL INVESTMENT RATING

What is being done:

– Notable efforts made to bring expenditure under control. – Efforts seen to reduce deficit and control debt stock. – Foreign bond issuance to support external position.

What more needs to be done:

– BON – needs to take external position mandate more seriously. – Efforts needed to extend duration (zero net TB issuance). – Foreign currency debt still desperately in need of hedging. – Further constrain on spending, caution on forecasts – Infrastructure provision

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PROVISION OF KEY SERVICE INFRASTRUCTURE

What is being done:

• CAN Water

– Artificial recharge of the Windhoek aquifer N$343.8 million in 2017/18 and 2018/19 – Bulk Water Supply – N$156.5m in 2018/19, N$3.5 billion thereafter. – Nothing in 2016/17 – high probability of 30% water supply to CAN from September – ECONOMIC AND SOCIAL DISASTER.

• Energy

– No allocation to NamPower

• Full costs of emergency power to be passed through to consumers?
• Road, Rail

– Notable allocations to both key road and rail infrastructure.

What more needs to be done:

• All stops need to be removed to provide immediate funding for CAN water.
• Funding needs to be made available for NamPower should energy prices increase

as a result of poor planning by SOE monopoly.

• Improved maintenance of current infrastructure.
• Sell off non-core assets and infrastructure (and use funds for new, core,

infrastructure)

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SOCIAL SUPPORT, POVERTY REDUCTION AND (SUSTAINABLE) REDISTRIBUTION

What is being done:

– Sizable increases in social spending. – Pensions increased by 10%. – Transfers to food banks – New Ministry established – “War on Poverty” – “Solidarity” Tax

What more needs to be done:

– Better utilization of current budget funds

• Improved access to housing – best redistribution to give each Namibian family

serviced land.

• Improve quality of healthcare

– BIG?

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HOUSING

What is being done:

– NHE allocated N$100 million in 2016/17, nothing thereafter – Habitat, Research and Development Centre N$300m in 2016/17, N$1.2 billion across MTEF. – Small allocations through development budget (Whk – N$10 million in 2016/17 etc.) – Other PPP projects.

What more needs to be done:

– Can, and should, provide free serviced land to every Namibian family, funded through the budget.

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EDUCATION AND HEALTH

What is being done:

– Large budget allocations to both education and health. – Notable spend in development budget, looking to improve coverage. – Notable increases in maintenance . – Large transfers to SOEs.

What more needs to be done:

– Radical change in system needed. – Focus on quality improvement at all costs. – Private sector involvement (education in NEEEF – genuine empowerment?).

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OTHERS

What is being done:

• Huge budget allocations to Defence (not just for employment)
• Huge allocation for “ivory tower” parliament buildings
• Huge allocations for Government offices (+-N$12bn of projects

in Development Budget)

• Many wasteful, non-productive projects.
• Huge personnel costs
• Large transfers to SOEs

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WHAT MORE NEEDS TO BE DONE:

• Capping of Defence spending at current levels; reduction in development

budget expenditure; REMOVAL OF ALL NEW MILITARY BASE PROJECTS; involve Defence Force in current priority projects (i.e. land servicing and poverty reduction) so as not to have to employ more people.

• SCRAP NEW PARLIAMENT. Upgrade, renovate and maintain current

parliament (as budgeted for); spend “savings” on housing Namibia.

• Moratorium on all new Government offices; budget to improve use of

space, renovation and maintenance; full audit of current Government assets.

• Scrap current non-productive development budget project; conduct proper

appraisals of all future projects; reroute funds to key infrastructure projects (WATER, road, rail, energy etc.)

• Cap civil service at current levels; conduct (credible) HR needs assessment,

don’t refill unnecessary positions; encourage movement within Government, freeze positions once vacated unless critical.

• Demand that all SOE’s have annual audits; conduct (credible and

transparent) cost benefit analysis for Air Namibia.

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BUDGET PROCESS

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(10,000)

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 N$ Million

Expenditure

First Year Second Year Third Year

• The budget shows hallmarks of

being a rushed, excel exercise.

• There remains a notable

disconnect between priorities (speech, NDP4, V2030) and expenditure.

• N$210bn envelope – has

enough attention and expertise been seen?

• Budget cycle and planning

cycles misaligned.

• Little feedback on spend

quality- little M&E

CONCLUSIONS

• Definite moves in the right direction, but still much to be done.
• Minister to be commended on efforts to date.

– Reducing expenditure challenging politically. – Slow improvement in alignment of budget to priorities.

• Allocations to rail and road
• Some allocations to water
• Improved allocation to maintenance
• Still large allocations to education and health – quality still worrying
• Greater spend needed on key infrastructure, poverty reduction and

housing.

• Less spend needed on parliament, offices and Defence (amongst
• thers).
• Tough decisions needed on wage bill, civil service reform and SOEs.
• Incredibly difficult to maneuver with current budgeting approach.

Rolling 3 year MTEFs remain a disaster.

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Thank you

Questions?

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FINAL POINTS:

• Regulation 15, 28
• Listing of SOEs
• Infrastructure bonds and funds
• Solidarity tax
• NEEEF

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